Repo Market Talk and Commodities.....
Alright, the Repo market is what is on everyone's mind. In case you don't know what this market is it is the overnight loan market where banks lend each other money. Lately, it hasn't been functioning very well because of liquidity issues.
Why liquidity issues?
Well if the Fed didn't have access to all markets now (like they do) we could be looking at another 2008 scenario. This is what most of the pundits would have you believe and that the Fed has lost control (along with all the other central banks).
This simply is not true. When an entity can print as much money as it wants then it hasn't lost control. That is the simple way to look at it. The repo market was hammered because you essentially reached the end of another debt cycle where people along with some lending institutions were insolvent as a result of loans made. Loans that were not very good I might add but the one big difference is you have big brother watching what you do now. Contagion does not have a chance to set in because liquidity is injected into the insolvent market participants being, of course, the lenders. What causes contagion is when you cannot solve the immediate liquidity problem and then it spreads on down the line. You remember back in 2008 when the secondary and tertiary mortgage lenders got into trouble and the Fed said that it was contained. Well, it wasn't because the Fed did not have access to the markets the way it does now along with its subsidiaries that do its bidding.
Simply put the Repo market endured the end game of lending. That is usually a cyclic end where all the over-leveraged participants fail and take all the institutions down that gave them loans. So first and foremost lenders are not in any serious risk like in the past thanks to central banks. This is not likely to change any time soon. So, in a nutshell, the market is just fine. No, I would not look for another serious collapse like the great recession or depression. In these cases, liquidity was not available and could not be injected fast enough.
What about commodities?
Are we headed for the beginning of a brand new bull market?
Well, it is true that they are very cheap at the moment (historically low) compared to stocks. In most cases, they could be classified as a screaming buy. Especially the most popular ones. However, I think the term "this time it is different" applies here. Yes since 1970 or so the price of commodities to stocks has been very reliable in ringing in new bull markets and at present levels, a new bull should be ready to break out.
I don't think so.
Commodities are cheap no doubt. I think that they will stay that way for a long time to come because should you have a big commodity swing to the upside it puts huge pressure on the consumer who cannot endure any more pressure being this indebted. In other words we are no more likely to see 100 dollars a barrel oil than we are to see wheat at ridiculous prices. It all eventually hits the consumers pocketbook at stores. The fact that the Fed controls the market prices will keep that from happening. You could try a small amount of money in commodities at the moment but keep in mind they could go lower. Cheers!
Why liquidity issues?
Well if the Fed didn't have access to all markets now (like they do) we could be looking at another 2008 scenario. This is what most of the pundits would have you believe and that the Fed has lost control (along with all the other central banks).
This simply is not true. When an entity can print as much money as it wants then it hasn't lost control. That is the simple way to look at it. The repo market was hammered because you essentially reached the end of another debt cycle where people along with some lending institutions were insolvent as a result of loans made. Loans that were not very good I might add but the one big difference is you have big brother watching what you do now. Contagion does not have a chance to set in because liquidity is injected into the insolvent market participants being, of course, the lenders. What causes contagion is when you cannot solve the immediate liquidity problem and then it spreads on down the line. You remember back in 2008 when the secondary and tertiary mortgage lenders got into trouble and the Fed said that it was contained. Well, it wasn't because the Fed did not have access to the markets the way it does now along with its subsidiaries that do its bidding.
Simply put the Repo market endured the end game of lending. That is usually a cyclic end where all the over-leveraged participants fail and take all the institutions down that gave them loans. So first and foremost lenders are not in any serious risk like in the past thanks to central banks. This is not likely to change any time soon. So, in a nutshell, the market is just fine. No, I would not look for another serious collapse like the great recession or depression. In these cases, liquidity was not available and could not be injected fast enough.
What about commodities?
Are we headed for the beginning of a brand new bull market?
Well, it is true that they are very cheap at the moment (historically low) compared to stocks. In most cases, they could be classified as a screaming buy. Especially the most popular ones. However, I think the term "this time it is different" applies here. Yes since 1970 or so the price of commodities to stocks has been very reliable in ringing in new bull markets and at present levels, a new bull should be ready to break out.
I don't think so.
Commodities are cheap no doubt. I think that they will stay that way for a long time to come because should you have a big commodity swing to the upside it puts huge pressure on the consumer who cannot endure any more pressure being this indebted. In other words we are no more likely to see 100 dollars a barrel oil than we are to see wheat at ridiculous prices. It all eventually hits the consumers pocketbook at stores. The fact that the Fed controls the market prices will keep that from happening. You could try a small amount of money in commodities at the moment but keep in mind they could go lower. Cheers!
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